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March 30, 2001

Mr. Chairman and Members of the Subcommittee, my colleagues have reported on the results of the Fiscal Year (FY) 2000 audit of the Government-wide financial statements. I would like to take this opportunity to talk about my management agenda as Director of OMB.

As you know, I came to OMB from Eli Lilly, and I have been onboard for just over two months--it already seems a lot longer. While most of my management team is in place, including a 1st rate talent in Angela Styles who was just nominated to head the Office of Federal Procurement Policy, I am still looking for a Deputy Director for Management. I have very specific requirements and expectations for that individual, and I will take the time necessary to find the right person. I want someone with broad management experience in running an organization, someone who can deliver on the President's management agenda. I am also seeking a Controller for the Office of Federal Financial Management who will ensure that the Government?s financial management policies provide the framework for linking budget and management decisions to performance.

While at this moment, my immediate priority is to deliver the budget to Congress 10 days from now, I can tell you that we are moving forward on an ambitious management reform agenda, based on the principles set forth in the President?s Budget Blueprint. On St. Patrick?s Day, OMB senior political and career executives participated in an all-day review of management issues. We laid the groundwork for this agenda, which I intend to present to Congress as a budget addendum later this summer.

During the last decade, Congress carefully built a legislative path to strengthen the framework for financial management and performance measurement. It is time to bring financial management in the Federal Government into the 21st century.

The President has called for the Government to be accountable, so citizens can judge our performance. As responsible stewards, we must do more to show how funding levels relate to performance levels. To date, the Government's progress in linking budgets and performance has been slow. Bringing about a much better linkage will be a priority of this Administration. Department and agency heads have been directed that their 2002 performance plans, which will be submitted to you shortly, include performance goals for Presidential initiatives and for Government-wide and agency-specific reform proposals. Making good on those promises--not just making those promises--will be the standard of this Administration.

Earlier testimony today suggests that the Federal Government has made some progress in improving its financial management. Eighteen, or three-fourths of the 24 largest agencies and departments, passed their audits last year. The President intends to hold agency heads responsible for passing their audits, a fundamental requirement in the private sector and a simple performance measurement for people to understand. We will keep the pressure on those agencies without clean opinions and work with them to resolve their systems and record-keeping deficiencies. Long before the end of this decade all agencies will have clean opinions. But, that should not be equated with sound financial management.

Audits are simply a means--a tool--not an end unto themselves. Clean opinions are important for public accountability but do not necessarily translate to good Government. Agencies can pass their audits and still have serious management problems. Some of the agencies with program areas on GAO's latest High Risk passed their audits. In fact, if you look at the three agencies that received straight "A's" on this Subcommittee's report card for financial management, two have serious management challenges.

  • One's contract management program has been on GAO's High Risk list every year since 1990.
  • The other has difficulty estimating future costs for its most significant program. It found a $4 billion or 50 percent increase in the five-year projected cost of a major construction activity. This is particularly alarming since only six months ago the agency projected no cost growth.

And those are the superstars, Mr. Chairman.

Several agencies have had, and then lost, clean opinions in recent years, suggesting that the opinions were accurate at only one point in time. Heroic efforts where people work night and day to get a clean opinion as of a certain date are meaningless exercises unless they lead to the next step, the generating of reliable financial information on a daily, weekly, monthly, and quarterly basis.

There are other agencies that have yet to meet the minimum requirements necessary for good budget execution, let alone get a clean opinion. One agency overspent its FY 2000 budget by $274 million because it was unable to accurately project and account for its costs. This was a violation of both law and one of the most basic and long-standing controls in Government-the Anti-Deficiency Act. Despite improvement efforts, this is the second such occurrence in the last four years.

In a separate issue, while national defense is a priority for this Administration, we must ensure that systemic financial management problems at the Department of Defense are adequately addressed. It is critically important for DoD to modernize its financial management processes along with its strategy, mission, and resource decisions.

Yes, there has been progress, but let?s keep it in perspective. We should postpone celebrating our accomplishments, until we can ensure that there is an enduring quality to these achievements. This Administration is ready to take the next step in what will be a long-term exercise to learn how to make decisions based on the financial and performance information available to us.

Perhaps our greatest challenge will be to embed into the budget culture in Washington the habit of using financial information in real time to give our citizens the good Government they deserve.

Thank your, Mr. Chairman, for this opportunity to testify before the Subcommittee. I would be pleased to answer any questions from the Members.